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The Capitalist | Gold or silver? Take your bets

The Capitalist | Gold or silver? Take your bets
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First Published: Wed, Apr 29 2009. 10 49 PM IST

Updated: Wed, Apr 29 2009. 10 49 PM IST
All of a sudden, all eyes are on silver and gold.
The State Bank of India (SBI) has revived a gold deposit scheme, which it introduced in 2007 but got a lukewarm response. Nonetheless, it continues to remain mysterious, giving out few details, not working through the trade and not even advertising the scheme aggressively.
On another front, as reported in these columns, for the first time in this country’s history almost 5,000 tonnes of silver was airlifted into India between September and December. Silver, bulkier than gold by weight to price, is normally shipped by surface transport. But this time, aware of the manner in which bulls were pushing up silver prices, some traders short-sold 2,000 tonnes of silver.
Also See Bullion Trends (Graphic)
The bulls thought they could move in for the kill and demanded immediate settlement. To their horror, the bears settled the transaction with physical delivery of 2,000 tonnes of the white metal. The market is thus sated with stocks and the appetite for more has gone. The same thing appears to have happened in gold as well. Everyone thought gold prices would go up. Traders bought gold hoping to profit from a further increase in prices. But many Indians sold gold, either because they needed cash, because someone in the family lost a job, or because the prices were extremely attractive.
Thus, in the past two months, much of the domestic demand for gold is being met through recycling of old gold than through fresh purchases. In fact, these two months have not seen any import of gold and silver at all, compared with 50 tonnes of gold and and 166 tonnes of silver that is normally imported into India every month. This has left most investors wondering whether gold and silver prices will continue to soften or not. Opinion is quite divided between the bulls and the bears for both the precious metals.
The bulls claim the demand for gold and silver is bound to increase—and hence their prices as well—because of tremendous uncertainty governing other investment avenues. The dollar is wobbly, so are the banks. Commodities are soft, and most countries’ GDP rates have dipped into the red. At such times, they add, gold and silver provide the best hedge. But the bears point to the first stirrings of life in the stock markets and oil prices. When that happens, they say, other options become more attractive as investments. Gold and silver prices have peaked for the time being, they add. What is clear, though, is that gold and silver appear to be out of sync. After moving in tandem for many years, gold and silver appear to be divergent in their movements.
That could mean one of two things: either gold prices come down to get in sync with silver, or silver prices move up. But the bears shake their heads and add a third possibility: both will come down. Take your pick.
Coining a con?
News reports have come out with data about banks aggressively pitching for sale of gold coins (not silver though). What makes this sales pitch unusual is that the prices at which the gold coins are sought to be sold are around 10-20% higher than prevailing market prices.
Some say gold coins sold by banks are priced higher because they guarantee the quality of the gold in their coins. This is a far cry from gold sold by jewellers which is reckoned to be contaminated to the tune of 10% and at times going up to 30% of the gold content. The government’s unwillingness to make gold hallmarking compulsory has only allowed many gold traders to continue shortchanging their customers.
But there is another reason for the markup in prices by the banks, say savvy traders. When gold prices were climbing—they briefly crossed Rs15,000 per 10g—many banks bought more gold hoping to make more money on increasing prices. But when prices fell, they were saddled with unsold stocks, and they did not want to post losses which would let their auditors know how greed briefly overtook their caution. Now, in order to cover losses, they want to sell this gold as coins but at a premium. It is not known how many customers have bitten the bait.
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DND option brings no respite from unwanted calls
When the Telecom Regulatory Authority of India (Trai) decided to create a do-not-disturb (DND) registry, it was hoped that telecom companies would ensure that spam (or unsolicited) calls and messages would not bother customers who had registered for this service.
That has not been the case for some telecom operators, especially with Vodafone Essar Ltd. Spam messages have increased in frequency.
When contacted, Vodafone expects customers to send it an email giving details of the number from which such a call or message was received, and its date, time and contents. It refuses to accept forwarded spams as proof, which would be so much more convenient and immediate.
What is worse is that Vodafone will only warn the errant parties a couple of times, after which it throws up its hands and expects the customer to take the errant communicator to court. Surely, it has software which can block such messages and calls.
But Vodafone’s customer service insists that this is not what it is required to do by the Trai.
Clearly, Vodafone does not want to be disturbed in its attempts to rake in more money, even if it inconveniences its customers, or goes against the very spirit behind the introduction of the DND. The matter now lies in Trai’s court.
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com
Graphics by Ahmed Raza Khan / Mint
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First Published: Wed, Apr 29 2009. 10 49 PM IST
More Topics: The Capitalist | RN Bhaskar | Gold | Silver | SBI |